Brexit Just Got Real, And Could Be A Great Opportunity For Australia

Now that Britain looks set to be freed from the shackles of EU membership, it is likely to look further afield.

20/01/2017 3:24 PM AEDT
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Updated
21/01/2017 4:52 PM AEDT

POOL New / Reuters

Britain's Prime Minister Theresa May delivers her keynote "Brexit speech" in Lancaster House in London, 17 January 2017.

"No deal for Britain is better than a bad deal for Britain."

With that, Theresa May made her negotiating position clear. This is not so much 'hard' Brexit as 'iron' Brexit. Her illustrious predecessor, Margaret Thatcher, would be proud.

As a result of the Brexit vote last June, the British Pound plunged to its lowest level since 1985, while the FTSE 100 reached a new day-low during May's speech to European ambassadors this week. The markets were well-prepared on Tuesday. The speech had been leaked in advance and therefore the fall out was limited, with the Pound soon rallying.

At the start of 2017, not just Britain but the whole of Europe is at a fork in the road -- specifically, are we headed for a more isolationist world, defined by bilateral and complex trade deals between nation states, or will Brexit and the Trump victory go down in history as mere anomalies? Enormous, but largely contained.

The answer may lie with the Pound's reaction to Tuesday's speech. It rallied... and then some.

This is bad news for Europhiles, who foretold of a calamity for Britain when it cut ties with its continental counterparts. "Go hard or go home" was one of 2016's most recognisable mantras, and it seems May has taken heed. The markets, never fans of uncertainty, have saved her bacon by rewarding her clarity. The Pound's resurgence means that Cameron's calamity is now May's moment, and international media is gushing at the conviction demonstrated.

Theresa May was probably right in her speech to say that punishing the UK would be "... an act of calamitous self-harm" by the EU. Security and trade is one thing, but if the EU is seen to be acrimonious in its dealings with Britain, the UK could become a martyr, used as leverage by populist, anti-EU opposition parties.

They might argue that such a heavy-handed approach confirms that the EU acts in its own interests, not the European people or family of ancient nations, of which Britain is still very much a part. In 2017, the threat of 'you're next' could be a powerful driver of the establishment's rejection at ballot boxes across the Eurozone. In other words, bully boy tactics could unintentionally contribute to the break-up of Europe.

Let's imagine that Brexit is indeed the beginning of the end for the EU: Australia may find itself dealing with another 27 former member states, which are also suddenly on the look for shiny and new trading alliances.

If the EU did break up, Australia would have to start over, renegotiating trade deals on a case-by-case basis. This is costly, fragmented and complicated. In 2014, the EU was Australia's largest source of foreign investment and second largest trading partner. Therefore, the scale of the job at hand would be huge.

On the flip side, now that Britain looks set to be freed from the shackles of EU membership, it is likely to look further afield, increasing trade with countries like Australia. Let's imagine that Brexit is indeed the beginning of the end for the EU: Australia may find itself dealing with another 27 former member states, which are also suddenly on the look for shiny and new trading alliances.

EU leaders might therefore do themselves a favour by taking the moral high-ground when it comes to their negotiating stance with a departing GB. A pragmatic, lighter-touch approach might just save it.

Letting Britain off the hook is also good news for Australian exporters. If UK Plc can negotiate favourable terms, that put its trading footing on a par with Norway or Switzerland (Single Market Lite), it will remain a safe trading partner and investment opportunity for Australian business. Britain will enjoy many of the benefits that EU membership affords, but will be free to define its trade relationship with its Australian cousins in whichever way it sees fit.

Potentially, there's a whole lot of pain ahead -- until such time that the dark cloud of uncertainty gives way to a sliver of a silver lining. In the meantime, Australian exporters are best placed to shore up the ship now, preparing for any eventually. There may be a lot of opportunity on the horizon, but the road there will be littered with pot holes, not to mention a whole world of competition. Australian business owners won't be alone in taking advantage of the moving parts on the old world's chess board.